$50 IS THE CEILING, NOT THE FLOOR:

The Saudis assumed the $80 break-even price for U.S. shale was a firm floor. They further assumed that the American innovation and ingenuity that had suddenly turned shale rock -- long deemed unproductive -- into the source of an energy revolution, was complete. They assumed wrong.

For the shale producers, the fall in prices was a shock, but then came the response. Spending on new production was reined in. Contracts were renegotiated with oil service companies, reducing the cost of equipment, and only the best drilling and fracking crews were retained.

Statoil, for example, reported that just in a few months it cut its drilling time for new wells in Texas' Eagle Ford formation from 21 days to 17. That kind of efficiency gain has helped "petropreneurs" reduce the cost of drilling wells from $4.5 million to $3.5 million.

Other companies are experimenting with new fracking fluids and different types of sand to create better shale-rock fractures. Some are effectively incorporating Big Data to better understand the sweet spots of geologic formations and optimal well-spacing to increase productivity.

The result is a rapid decline in the break-even price across shale plays. Already, analysts believe it is now $60 per barrel and before long will fall to $50.

Goldman Sachs now predicts that prices will likely hold at $50 for at least the next five years. Shale efficiency and innovation have created a new ceiling for the price of oil. This certainly was not the Saudis' aim.

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